The path
From proposal to binding order
Part 5.1 covers compromises and arrangements with creditors as well as with members. This guide stays with schemes between a company and its members, the kind RG 60 is written for. Section 411 sets the order, and these are its main steps.
- Application to the CourtThe body, or any creditor or member, applies, and the Court may order a meeting of the members, or of a class of them, to be convened as it directs.
- ASIC’s 14 daysThe Court must not make that order unless 14 days’ notice of the hearing, or a shorter period the Court or ASIC permits, has been given to ASIC, and ASIC has had a reasonable opportunity to examine the proposal and a draft explanatory statement and to make submissions.
- Notice and explanatory statementEvery notice of the meeting sent to a member goes with an explanatory statement, which the Court may approve when it orders the meeting.
- The meetingThe members vote. The scheme needs the two majorities below.
- Court approvalThe Court approves the scheme by order, and may do so subject to such alterations or conditions as it thinks just.
- Lodging with ASICThe order has no effect until an office copy is lodged with ASIC. It then takes effect from the date of lodgment, or an earlier date the Court specifies.
Section 411(4)
The two majorities
A majority of members
Unless the Court orders otherwise, the resolution must be passed by a majority in number of the members, or members in the class, present and voting in person or by proxy.
Of the votes cast
If the body has a share capital, the resolution must also be passed by 75% of the votes cast on it.
The first test counts members present and voting, in person or by proxy; the second counts the votes cast on the resolution. Where the Court orders 2 or more meetings of members, they are treated as one meeting, and the votes for and against are added together. Only once a meeting has agreed and the Court has approved does the scheme bind the members and the body; the Act says “if, and only if”.
Section 412
What the explanatory statement must say
The statement must explain the effect of the scheme and, in particular, state any material interests of the directors and how the scheme affects those interests differently from other people’s. It must also set out the prescribed information and anything else material to a member’s decision that the directors know and have not already disclosed.
Where notice of the meeting is given by advertisement, it must include the statement or say where and how members can get a copy, and every member entitled to attend who applies is given one free of charge. If a meeting of members resolves to direct it, the directors must also instruct the accountants or solicitors named in the resolution to report on the proposals, and make any report available for inspection at the registered office at least 7 days before the meeting.
Section 411(17)
Where a scheme meets Chapter 6
Section 411(17) ties schemes back to the takeover rules. It says the Court must not approve a compromise or arrangement unless:
“(a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or
(b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement”
The same subsection adds that the Court need not approve a scheme merely because ASIC’s no-objection statement has been produced. RG 60 explains how ASIC decides whether to give that statement under section 411(17)(b), and the matters it considers when it reviews scheme documents. ASIC also notes that “From 27 July 2020, fundraising and corporate finance documents should be lodged through the ASIC Regulatory Portal”.
Bid or scheme
How the two routes differ
| Point | Off-market takeover bid | Scheme of arrangement |
|---|---|---|
| Exception in section 611 | Item 1, acceptance of a takeover offer | Item 17, a Part 5.1 compromise or arrangement |
| Who decides | Each holder, by accepting or not | The members at a meeting, then the Court |
| Main document | Bidder’s statement, answered by a target’s statement | Explanatory statement sent with the notice of meeting |
| ASIC’s part | The bidder’s statement is lodged with ASIC | ASIC registers the explanatory statement before it is sent, has 14 days’ notice of the hearing, and may give a no-objection statement |
The bid’s own steps are in takeover bids, step by step. Disputes about control can go to the Takeovers Panel, whose power reaches circumstances in relation to a takeover or the control of an Australian company.
Back to the startA bid to each holder, or a scheme the members vote on.